The rise and fall of Intel

The iPhone Betrayal [0:07]

• Intel CEO Paul Otellini rejected Steve Jobs' 2007 proposal for Intel to create chips for the iPhone, a decision he later regretted, admitting his gut told him to accept but he followed the numbers, which proved to be a significant miscalculation.
• The forecast for iPhone chip demand was vastly underestimated, with actual demand being 100 times greater than imagined, leading Apple to adopt ARM architecture instead of Intel's chips.
• In the period following 2007, nearly 2 billion ARM chips were shipped for smartphones, dwarfing the 250 million PCs shipped during the same timeframe.

In retrospect, he regrets doing that for obvious reasons.

From Dominance to Decline [01:13]

• In the year 2000, Intel was valued at over $500 billion and commanded 90% of the global PC market share.
• By November 2024, Intel had been removed from the S&P 500, highlighting a drastic shift in its market standing.
• The video sets out to explore the factors behind the fall of such a dominant company, questioning whether it was leadership, market changes, technology shifts, or other underlying issues.

What could take down a company that was this dominant for this long that had so much market share and produced so much money?

The Genesis of Intel and the Microprocessor [02:01]

• Computer chips were invented in the 1960s, and in 1968, Robert Noyce left Fairchild Semiconductors with Gordon Moore to start their own company, Intel.
• They raised $2.5 million from venture capitalist Arthur Rock without a business plan, betting on their future potential.
• Employee number three, Andy Grove, a Hungarian refugee, would become a critical figure in Intel's history.
• Intel initially focused on DRAM memory chips, with their 1103 model achieving significant market success by 1972.
• In 1971, an Intel engineer invented the first integrated CPU (Central Processing Unit), the core component of modern electronics, though Intel did not initially prioritize this invention, with 90% of its business in memory.

Basically, he was betting on them being a thing someday, but uh they didn't have an idea yet that would be that great.

The Japanese Competition and the Shift Away from Memory [03:30]

• The early 1980s saw intense competition from Japan, driven by the Japanese government's focus on making electronics a powerhouse industry.
• Intel's market share in DRAM memory plummeted from 83% in 1974 to a mere 1.3% by 1984 due to this fierce competition.
• In 1985, Andy Grove and Gordon Moore decided to exit the memory business, which was becoming a commoditized, price-driven market, a move compared to Ford exiting the vehicle business.
• Grove, as CEO, courageously shut down memory plants and laid off employees, making a difficult decision against market trends.

If the board brought in a new CEO into our dire situation, what would the new CEO do?

The IBM PC and the Rise of the Wintel Duopoly [05:00]

• The emergence of the Personal Computer (PC), driven by companies like Apple and IBM, created a new market for microprocessors.
• IBM chose Intel as its processor supplier for its PC in 1981, initially viewing the CPU as a commodity, which inadvertently positioned Intel for massive success.
• Andy Grove became CEO in the late 1980s and authored "Only the Paranoid Survive," emphasizing the need for companies in fast-moving industries to anticipate disruption.
• IBM's PC, along with Microsoft's software, led to the standardization of the "Wintel" (Windows and Intel) platform, creating a powerful duopoly.
• This standardization meant that most PC buyers had only one choice: Windows with an Intel processor, leading to a virtuous cycle of application development and user familiarity.

And so what happened was eventually the entire industry standardized on what would become called the Windtel Monopoly.

The Pentium Era and Peak Valuation [07:04]

• The "Wintel" duopoly was incredibly successful, propelling Intel to become the world's largest semiconductor company by revenue in 1992.
• In 1993, Intel launched the Pentium processor, a major product with a massive $500 million promotional campaign.
• By the late 1990s, Intel held over 90% of the processor market, describing it as a "license to print money."
• At the peak of the dot-com boom in 2000, Intel's market capitalization reached over $500 billion.
• Intel was "totally vertically integrated," controlling design, production, distribution, and sales, allowing for complete control over its manufacturing process.

They had a license to print money.

The Mobile Miscalculation and the Innovator's Dilemma [09:53]

• The video explains the two main types of chips: RISC (Reduced Instruction Set Computing) and CISC (Complex Instruction Set Computing). Intel specialized in CISC, which was power-hungry, making it suitable for desktops but not ideal for mobile devices where battery life was crucial.
• Intel owned a company producing ARM (a type of RISC chip) chips called StrongARM but sold its entire ARM business in 2006 for $600 million, just a year before the iPhone call.
• This decision was driven by the "innovator's dilemma": the fear that pursuing lower-margin mobile chips (20% margins) would cannibalize their high-margin PC chips (60% margins).
• Intel's failure to adapt to the mobile market, exemplified by the sale of its ARM business, led to billions invested in trying to catch up, ultimately culminating in selling its mobile chip business to Apple for $1 billion by 2019.

In pursuing the future, they were potentially going to cannibalize their existing business.

Manufacturing Stumbles and the Rise of TSMC [13:32]

• Intel's legendary manufacturing capabilities, which had consistently pushed the boundaries of chip miniaturization (e.g., moving from 14nm to 10nm), began to falter.
• The complexity of shrinking chips to nanometer scales led to delays and quality issues, with nearly half of produced chips showing flaws.
• While Intel struggled, competitors like Taiwan Semiconductor Manufacturing Company (TSMC) advanced, reaching 7nm while Intel was still grappling with 14nm.
• This manufacturing gap allowed AMD, which had partnered with TSMC, to re-emerge as a significant competitor, capturing market share in PCs and servers from Intel.

This created an opening for Intel's biggest competitor.

The AI Revolution and NVIDIA's Dominance [16:01]

• The rise of Artificial Intelligence (AI) presented another paradigm shift that Intel was ill-prepared for, as AI processing requires massive parallel computation, unlike Intel's sequential processing strengths.
• NVIDIA's CUDA platform, developed for graphics processing units (GPUs), became the de facto standard for AI development, enabling companies to perform AI tasks much faster than with traditional CPUs.
• Intel missed an opportunity to invest in OpenAI in 2017, and later, their acquisition of Habana Labs for AI chips did not yield significant results.
• NVIDIA experienced explosive revenue growth from $27 billion in 2022 to $60 billion in 2023, with its market capitalization occasionally exceeding $3 trillion, surpassing Intel significantly.

And the chips they' chosen were Nvidia.

Leadership Turmoil and Strategic Realignments [18:32]

• Intel's leadership faced significant challenges, with CEO Pat Gelsinger's strategy, "IDM 2.0," aiming to catch up with TSMC by becoming a foundry for other companies' designs, proving costly and largely unsuccessful, with the foundry unit losing $7 billion in 2023.
• Intel's revenue declined from $71 billion in 2021 to $54 billion in 2023, and despite hiring more people, dollar-per-head productivity decreased.
• Gelsinger was eventually asked to retire by the board in December 2024, following substantial layoffs, including 17,500 people.
• The company's former envoy, Jensen Huang of NVIDIA, replaced Intel on the S&P 500, marking a symbolic shift.
• Intel's significant stock buybacks ($70 billion between 2011-2021) are noted as a missed opportunity for reinvestment in fabs and R&D.

Our revenues have not grown as expected and we've yet to fully benefit from powerful trends like AI.

A Structural Shift in Incentives [23:03]

• The departure from the Andy Grove era marked a loss of Intel's long-term, owner-like perspective, with subsequent leadership appearing more focused on quarterly performance rather than future strategic gains.
• This structural change in incentives, driven by a focus on short-term results, led to missed opportunities in mobile and AI revolutions.
• The video concludes by noting that Intel's own family has transitioned away from Intel chips, now using Apple's Macintosh, iPhones, and iPads, reflecting the broader market shift.

After Andy Grove, it's pretty clear Intel lost its way.